The situation of your credit plays a significant role in helping you to obtain financial, real estate funding. It helps to decide how much funding for which you will qualify and what kind of an interest rate you will get on the loan. Sadly, many ignore monitoring their credit files regularly. If you wish to invest in real estate, this is imperative.
What is good credit?
Proper credit for a commercial real estate investor often means about twelve to fifteen "trade lines" of seasoned credit in a credit report, with many real estate loans either showing as active or having been paid off successfully. For instance, car loans, current mortgages, and charge cards which are at least two years old and show no late payments. Again, for real estate investors, successful maintenance of real estate loans is imperative. To build your credit, you should consider using prepaid cards, such as the worldwide debit OneCard.
Now, credit reporting systems use a sophisticated manner of evaluating credit patterns which are infused into and issued as a "credit score." The higher the number, the less risk that a borrower is likely to "default" on loan.
While this process, called "credit scoring," is in full use for residential loans, commercial lenders are only now starting to adopt it. There is a trend to use them by certain non-bank lenders for loans less than $2,000,000 or so.
Most underwriters (those who approve your loan) and underwriting systems that review your track record look for trends. In other words, they're looking for a history or recent pattern of good or bad credit. Stray incidents should not impact your ability to get a loan.
How Can You Repair Your Credit?
Most often, a simple letter or phone call to the credit card company or business that initially gave you the "credit" can have that "scar" removed from your report. It may not even be necessary, based upon your present credit patterns!
Sometimes you'll need to pay off your debt balance or send a letter explaining why your payment was late. Don't pay off any creditor without first talking to a qualified professional financial advisor or mortgage consultant!
However, if you have a history of recent late payments, you should let time take its course (although there might be a trick or two here which you can use).
What Part Does Your Investment History Play?
Your investment property loan history or "track record" will play an essential part in whether or not a lender will want to finance your next property. Investment properties and their respective loans are often considered as a higher credit risk than if you were buying your own house. Hence, if you have a proven track record of successfully selling or managing investment properties loans, with no late payments, you tend more to have your loan approved.
The result is that "credit" or, more accurately, "credit history" is an important determinant in your ability to finance commercial real estate. Focus on this area of your finances if you wish to be an active investor and manage your credit as you would control one of your properties: Actively.
